Survey: Add-on Fees Mean No Relief in Acquirer Pricing in 2004

Add-on pricing as well as an increase in manual items kept the fees banks and independent sales organizations pay to processors from dropping in 2004, according to a new acquirer-pricing study released today. Although most observers thought processor fees might decline somewhat last year as a result of the emergence of more alternative sources of processing and rising competitiveness, a new survey from Omaha, Neb.-based Strategic Management Partners has found per-transaction pricing held steady compared to 2003. Indeed, the research firms says, though many acquirers think their pricing is going down, it really is not when “all the add-on fees, annual price escalators, and new back-office products” are included. The new survey looked at both front-end authorization services as well as back-end settlement, with special attention to add-on, or what the firm calls “bottom-of-the-invoice,” pricing. It found wide variance depending on size, with size defined by the survey as number of transactions generated by a portfolio of merchants. The largest portfolios, according to the survey, pay 60% less for point-of-sale authorization than do small portfolios. Large portfolios pay as much as 10 cents less per front-end transaction, the survey reveals. For settlement, large portfolios enjoy a 47% price advantage, amounting to 1.5 cents per transaction. Propping up prices for all acquirers, the survey found, are new products and services processors are introducing and charging as add-on items. The survey also examined BIN clearing fees, the charges acquirers pay to “rent” a bank identification number to gain access to the bank card association settlement networks. Here the survey again found a wide variance of pricing, with a spread of more than 4.5 cents per transaction, and a high point nearly 20 times greater than the low price point. Here again pricing tends to decrease with portfolio size, though some mid-size portfolios report pricing lower than that of portfolios three to four times larger, according to the survey. Although increased scrutiny by the bank card networks of banks that do “rent-a-BIN” arrangements has been expected to drive up these fees, that has not happened yet, the survey finds. The survey, known as a benchmark study, canvassed more than 20 of the largest U.S. acquirers, both financial institutions and ISOs, which collectively account for almost 200 million monthly transactions. Volumes ranged from 45 million on the high end to 108,000.